Colorado Springs Real Estate

The Perfect Storm

Written by Bill McAfee, President of Empire Title

The Perfect Storm by definition is a convergence of independent events that form an environment never experienced before.  If you are a buyer in today’s real estate market, you could experience the perfect storm.  There are three factors that are coming together which could make home buying one of the best decisions you can make.  Inventory levels are high, homebuyer programs are very attractive, and interest rates are at historic lows.

First of all inventory levels are high giving buyers multiple homes to choose from.  In many cases homes are in move in condition.  October’s inventory level on residential resale properties was 6.42 months.  (See chart #1)  The last time inventories were this low was April of 2007.  Normal inventory levels range from five to six months.  Inventory levels that drop below four months are usually sellers markets.  During these markets prices trend up.  Median sales prices for our region have improved this year.  (See chart #2)  A twelve month running average indicates median prices are stabilizing.  (See chart #3)  Median prices mean 50% of homes are selling above and 50% are selling below a certain price.  The median price for October, on a twelve month running average, was $186,600.  Notice the market seems to be stabilizing.  It is also critical to know that 87% of the homes sold were $299,999 and below, and 76% of the homes sold $249, 999 and below.  Demand for homes below $250,000 is increasing because buyers are using VA and FHA loans.   These types of loans require little or no money down. In addition, these types of loans are debt to income driven.  This means you must prove you can afford the payments.  Down payments are important to buyers but a credit of $6,500 to $8,000 can seal the deal. The Storm is brewing. 

On November 6, 2009, the “Worker, Homeownership and Business Assistance Act of 2009” was signed into law.  This law requires long time homeowners to be under contract by April 30,2010 and close by June 30, 2010.  The credit available  for long time homeowners is $6,500.  They must have owned their home for five years during the eight year period that ended on the date the replacement home was purchased.  This law also raises the income level for individuals to $125,000 modified adjusted gross income (M.A.G.I.) and $225,000 M.A.G.I. for joint filers.  This law will benefit both first time and long time homebuyers.

First time home buyers must be under contract by May 1, 2010 and closed by July 1,2010. The amount of credit for first time homebuyers is $8,000.  This credit creates momentum for our storm but the catalyst that creates and propels our storm is interest rates.  (see chart #4)

Interest rates are at historic lows.    If you borrow $200,000 at 5% the payment is $1,207.84.  If you borrow $200,000 at 7% the payment is $1,469.93.  An increase in interest rates of 2% will increase your payment to $289.09 per month.  This will increase the amount you pay for your home over a thirty year mortgage $104,072.40. The government has stated interest rates are artificially low.  Rates will go up, it is a question of when and how much.   Do not gamble on rates.  Remember interest rates are the catalyst for the perfect storm. 

Buyers need to take advantage of high inventory levels, buyer credits, and historic low interest rates.  The prefect storm is here and buyers need to take advantage of these conditions as they may not come together again in the foreseeable future.*

* This information is deemed reliable but not guaranteed.  Resources: Pikes Peak Multiple Listing Services, National Association of Realtors, El Paso County Clerk and Recorder, IRS, Freddie Mac.